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Q&A: Navellier's top stocks
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May 22, 2000: 11:02 a.m. ET
Money manager talks about the becalmed market, breaks down picks
By Staff Writer Alex Frew McMillan
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NEW YORK (CNNfn) - Louis Navellier manages just over $6 billion as president and CEO of Reno, Nev.-based Navellier Securities, portfolio manager of the Navellier Performance Funds and a manager of institutional and large personal accounts.
In an interview at the 12th Annual Las Vegas Money Show, he gave his top five stock picks for active traders to CNNfn.com, explained his quantitative analysis and said he felt the Fed was right to raise interest rates.
CNNfn.com: Many technology fund managers are furious and say they don't know where the Fed is coming from with this half-point raise. What do you think?
 Navellier: Market rates went up, and they [the Fed] have to follow market rates. He [Fed Chairman Alan Greenspan] is not bigger than the market. He just guides it. So what he did was fully anticipated and fully reasonable. Five of the last six rate increases, he has lagged the market. It was fully discounted, and I think we're all relieved they did it.
CNNfn.com: What happens after this hike?
Navellier: Wall Street had a relief rally. Now reality is setting in. The big controversy is whether they'll increase them in June and August. It doesn't look like they will. We've got a lot of signs that everything is cooling off. Retail sales tailed off. Producer prices are better behaved. The latest CPI was pretty well behaved. So I think we're OK.
CNNfn.com: Garrett Van Wagoner, a tech-oriented fund manager, said people were "taken out in body bags" in April. What do you tell investors who have been hurt?
Navellier: You have crosscurrents. You have the strongest returns in history vying with rising rates. So if you have value funds, you don't do well. If you have growth funds that have phenomenal growth, you can do fine. I don't think anybody is worried about it. Most of our funds are still up sharply for the year. We manage about $6 billion. And most of those people are long-term investors. If you are a short-term trader, you have the right to come and go from our funds. But we haven't seen any amounts of outflows or anything.
Check your mutual funds
CNNfn.com: Have a lot of investors gotten confused and become traders, or were investors trying to be traders before April, anyway?
Navellier: I'm sure they were. One of the reasons that volume dropped off is, a lot of the day traders got chucked out of the business. Another reason volume dropped off is the summer seasonality that plagues Wall Street. There are other things. The institutions are still much more powerful than the individuals. That action is still very hot and heavy. There are institutions that are pretty busy. But there are also a lot of institutions on the sideline. That's one of the reasons that volume is light.
CNNfn.com: So the next two or three months will be pretty stagnant?
Navellier: Boring, yeah. When volume drops off, prices settle down. Volume is the force that turns stocks higher.
CNNfn.com: How did you come up with your top stock picks?
Navellier: The markets are very narrow, and 90 percent of the money chases less than 10 percent of the stocks. I grade my stocks. I'm what they call a quant, one of the geeks of the stock market. So, it's pretty simple. These fundamental characteristics attract money to them. I want attractive stocks that will benefit from persistent institutional buying pressure. All these stocks have incredible earnings growth. Earnings are growing faster than revenues, due to profit margin expansion. The average stock [on this list] has over 70 percent sales growth. And they [analysts] are also upgrading the stocks, which creates buying pressures.
CNNfn.com: Tell us about Three-Five Systems (TFS: Research, Estimates).
 Navellier: This is how we grade our stocks. Three-Five Systems: top 69% for analysts' earnings estimate changes, which means upgrades in earnings; top 95% for earnings surprises; top 97% for operating growth; top 50% for momentum; top 56% for liquidation value; top 82% for sales growth. It gets a total score of 74.
CNNfn.com: DSP Group (DSPG: Research, Estimates) is next on the list. It makes system-processing circuits for phones.
Navellier: Most of these are techs. Analysts are not that positive near-term for DSP, which has a poor score for estimate changes, 12%. But then it ranks in the top 88% for earnings surprises, the top 98% for operating growth, the top 62% for momentum, the top 71% for liquidation value -- they're more likely to be acquired if they get a high score -- and the top 85% for sales growth. That's a total score of 70. It hits on five of the six factors. If one of these other factors fail, it would probably be kicked off our system.
CNNfn.com: Then we come to Photon Dynamics (PHTN: Research, Estimates).
Navellier: This is a small-cap stock. Small-caps are a little bit more frustrating. They sit and then hop, and are a little less liquid. Top 86% of analysts' earnings estimate changes, top 83% earnings surprises, top 98% operating growth, top 66% momentum, top 46% liquidation value, and top 92% sales. It gets a total score of 77.
CNNfn.com: And Applied Micro Circuits (AMCC: Research, Estimates)?
Navellier: They're just all being graded -- this is how we think. They make chips that go in high-definition TVs. Top 96% analysts' earnings estimates changes, top 83% earnings surprises, top 95% operating growth, top 84% momentum, top 42% liquidation value, top 82% sales growth. That gets a total score of 81. That's an extremely high score. About the highest score a stock can get is 88.
CNNfn.com: Your last pick is Triquint Semiconductor (TQNT: Research, Estimates).
Navellier: They make the little GPS [Global Positioning System] chips that go in navigation systems. Top 98% earnings estimate changes, top 40% earnings surprises, top 88% operating growth, top 52% momentum, top 58% liquidation value, top 80% sales, total score is 70.
* Disclaimer 
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